Australian oil company Woodside confirmed Monday it has been in talks with BHP over the potential acquisition of BHP's oil and gas business.
"Woodside notes recent speculation regarding a potential transaction between Woodside and BHP Petroleum. Woodside continuously reviews the composition of its asset portfolio and opportunities to create and deliver value for shareholders. Woodside is engaged in discussions with BHP regarding a potential merger involving BHP’s entire petroleum business through a distribution of Woodside shares to BHP shareholders," Woodside said.
"These discussions are ongoing. Woodside will continue to update the market in accordance with its continuous disclosure obligations," the company added.
The confirmation of the talks came from BHP, too.
"BHP confirms that we have initiated a strategic review of our Petroleum business to re-assess its position and long-term strategic fit in the BHP portfolio. A number of options are being evaluated. One option is a potential merger of the Petroleum business with [Woodside] and a distribution of Woodside shares to BHP shareholders.
"We confirm that we have been in discussions with Woodside. While discussions between the parties are currently progressing, no agreement has been reached on any such transaction. A further announcement will be made as and when appropriate," BHP said.
Commenting on the news, Wood Mackenzie research director Andrew Harwood said the merger would create a new international ‘super independent’ built for scale and resilience, with a long-term focus on LNG but exposure in the medium term to high-margin, deepwater oil.
Harwood said: “BHP’s oil operations in the Gulf of Mexico (GoM) complements Woodside’s deepwater capabilities and add a new core focus area to Woodside’s existing portfolio. BHP has recently sanctioned US$800 million of new investment at the Shenzi hub in the GoM and is progressing the Trion project in Mexico.
“Woodside would also strengthen its position in its key North West Shelf LNG and Scarborough assets. Woodside would be firmly in control of the Scarborough development but will continue to look for new partners to optimize future capital outlays.
“Strong cash flow from BHP’s GoM assets over the next decade will provide steady shareholder returns while supporting planned investment across the wider business in LNG growth and new energy opportunities.
“An exit from its petroleum business has been long rumored for BHP, and as it faces rising pressure from the energy transition, it would seem that the mining conglomerate has determined now to be the optimum moment to achieve maximum value. The terms of any merger announcement will be closely examined to see exactly what value has been achieved.
“Following hot on the heels of Santos’ proposed merger with Oil Search, a Woodside-BHP combination is further evidence of oil and gas operators seeking solace from longer-term uncertainty through scale, and doubling down on long-term, cash-generative, resilient resource themes.
“For the wider Australia E&P sector, a second merger proposal will give Australia another homegrown heavyweight that can compete on the international scene. The inevitable optimization of enlarged portfolios will also provide opportunities for other players looking to squeeze value from assets deemed surplus to requirements by these newer and bigger entities.”